BILL ANALYSIS Ó SB 862 Page 1 ( Without Reference to File ) SENATE THIRD READING SB 862 (Budget and Fiscal Review Committee) As Amended June 13, 2014 Majority vote. Budget Bill Appropriation Takes Effect Immediately SENATE VOTE :Vote not relevant SUMMARY : Implements, as part of the 2014-15 budget, the Cap and Trade expenditure plan for expenditure of Greenhouse Gas Reduction Funds and creates specific state programs for that purpose. Specifically, this bill : 1)Articulates legislative intent that the Cap and Trade investment fund in the following investment areas: a) Transit, Affordable Housing, and Sustainable Communities; b) High Speed Rail; c) Low Carbon Transportation; d) Energy Efficiency and Renewable Energy; e) Natural Resources and Waste Diversion. 2)Creates a Cap and Trade programs to allow for expenditures: a) Transit, Affordable Housing, and Sustainable Communities; b) Transit and Intercity Rail Program; c) Low Carbon Transit Operations Program; d) High Speed Rail Program; e) Clean Vehicle Rebate Project; f) Energy Efficiency State Property Revolving Fund; SB 862 Page 2 g) Program Timberland Environmental Impact Report for Carbon Sequestration and Fuel Reduction Program; h) Waste Diversion and Greenhouse Gas Reduction Financial Assistance Program. 3)Establishes accountability and reporting provisions for Cap and Trade investment. a) Requires each state agency to demonstrate to the California Air Resources Board how expenditures reduce greenhouse gas emissions; b) Requires the California Air Resources Board to develop guidelines for this purpose; c) Articulates that Cap and Trade expenditures must have a clear nexus to the greenhouse gas reduction goals; d) Stipulates that overall Cap and Trade expenditures must comply with existing statutory requirements that at least 25% of the funds are spent at on disadvantaged communities. 4)Creates the Transit, Affordable Housing and Sustainable Communities Program which contains several distinct programmatic funding areas: a) Affordable Housing and Sustainable Communities program, a competitive grant program administered by the Strategic Growth Council. i) States the goals of the Affordable Housing and Sustainable Communities program are: (1) Reducing air pollution; (2) Improving conditions in disadvantaged communities; (3) Supporting public health; (4) Improving connectivity and accessibility; (5) Increase mobility to implement of Active SB 862 Page 3 Transportation Program; (6) Increase transit ridership; (7) Preserving and developing affordable housing, as defined Health and Safety Code Section 50079.5; (8) Protecting agriculture lands to support infill development. ii) Requires all program funding demonstrate reduction in greenhouse gases emissions, support implementation of a sustainable communities strategy, and demonstrate consistency with state planning priorities. iii) Articulates projects that may be eligible for funding, the list includes, but is not limited to: (1) Intermodal affordable housing projects; (2) Transit capital projects that support transit ridership; (3) Active transportation programs, such as bicycle and pedestrian programs; (4) Non-infrastructure related active transportation programs; (5) Transit-oriented development projects; (6) Complete streets capital projects; (7) Acquisition or other approaches to protect agricultural lands that are under pressure of being converted to non-agriculture uses; (8) Planning and support of sustainable communities' strategies. iv) Requires the Strategic Growth Council to develop guidelines, in consultation with the California Air Resources Board, to implement this program. The guidelines must be developed in a public process and with SB 862 Page 4 the coordination of metropolitan planning organizations. v) Sets a programmatic goal that 50% of all Affordable Housing and Sustainable Communities funding benefit disadvantaged communities. b) Transit and Intercity Rail Capital Program, a grant program for transport and rail related capital projects that is administered by the State Transportation Agency and awarded by the California Transportation Commission. i) Articulates projects that may be eligible for funding: (1) Rail capital projects including rail cars and improving connectivity to existing and future rail systems; (2) Intercity, commuter, and urban rail projects that increase service levels, improve reliability, and decreases travel time; (3) Rail and transit integration, including integrated ticketing and scheduling; (4) Bus Rapid Transit and other bus transit investments. ii) Requires that the all expenditures demonstrate a reduction in greenhouse gas emissions as a condition for funding. iii) Sets a programmatic goal that 25% of Transit and Intercity Rail benefit disadvantaged communities. iv) Requires the California Transportation Commission to consider co-benefits in awarding funding. v) Requires the Transportation Agency to develop guidelines through a public process. c) Low Carbon Transit Operations Program, which provides funding through the existing State Transit Assistance program to reduce greenhouse gas emissions by supporting SB 862 Page 5 new or expanded bus or rail services or expanded intermodal transit facilities. i) These funds will be distributed by the State Controller to local agencies through the existing statutory funding formula; ii) Requires Caltrans, in coordination with the California Air Resources Board, to develop guidelines for the use of these funds, each transit agency must have a plan approved by Caltrans prior to expenditure of funds; iii) Requires 50% of funding spent on programs benefit disadvantaged communities, this provision only applies to local agencies that have identified disadvantaged communities in their service area. 5)Creates the Energy Efficiency and Renewable Energy program for the use of Cap and Trade funds for weatherization activities in low income communities. Requires the Department of Community Services and Development to develop guidelines for the program. 6)Amends the Energy Efficiency State Property Revolving Fund to allow for the use of Cap and Trade funds for a revolving loan fund to finance energy efficiency activities in State owned-buildings. 7)Creates the Program Timberland Environmental Impact Report for Carbon Sequestration and Fuel Reduction Program, administered by the Department of Forestry and Fire Protection, which allows the use of Cap and Trade funds for carbon sequestration and to resist wildfires through agreements with landowners. 8)Creates the Waste Diversion and Greenhouse Gas Reduction Financial Assistance program, a revolving loan program administered by CalRecycle to fund organic composting, anaerobic digestion and recycling. 9)Allows renewable energy projects at the California Department of Corrections and Rehabilitation to be included in net energy metering as an eligible customer-generator. 10)Continuously appropriates, beginning in 2015-16, 60% of SB 862 Page 6 annual Cap and Trade revenues for the following purposes: a) Thirty-five percent of the total Cap and Trade Revenues are appropriated to the Transit, Affordable Housing and Sustainable Communities program. These funds are allocated within this program as follows: i) Twenty percent of total Cap and Trade revenues are appropriated for the Affordable Housing and Community Services program. Half of these funds, 10% of the total Cap and Trade Revenue, must be used for affordable housing; ii) Ten percent of total Cap and Trade revenues are appropriated for the Transit and Intercity Rail Capital Program; iii) Five percent of total Cap and Trade revenues are appropriated to the Low Carbon Transit Operations program. b) Twenty-five percent of total Cap and Trade Revenues are appropriated to the High Speed Rail Authority for costs associated with constructing the High Speed Rail system and the repayment of loans made to fund the project. 11)Dedicates the $400 million owed to the Greenhouse Gas Reduction fund from the General Fund to the High Speed Rail when the loan is repaid. 12)Appropriates $20 million in Greenhouse Gas Reduction revenue for the Clean Vehicle Rebate project to replace existing Vehicle Inspection and Repair Account and Air Quality Improvement Fund revenues currently dedicated for that purpose. 13)Expands the membership of the Strategic Growth Council to include two public members, one appointed by the Assembly and one appointed by the Senate. 14)Contains a severability clause. FISCAL EFFECT : The 2014-15 budget includes $832 million of Cap and Trade funding for programmatic purposed outlined in this SB 862 Page 7 bill. In addition, 60% of all future Cap and Trade fee revenue are appropriated by this bill. COMMENTS : This budget implementation bill creates the programmatic structure for the expenditure of Cap and Trade funds. For the 2014-15 budget year, it provides the necessary programmatic framework to allow for funds appropriated in the budget to be expended in a manner consistent with existing state policies. In specific, this bill creates structures to allow Cap and Trade funds to flow to investment areas identified by the State Investment Plan, as created by AB 1532 (John A. Pérez) Chapter 807, Statutes of 2012. This plan was created to implement the intent of AB 32 (Núñez), Chapter 488, Statutes of 2006, which established the Cap and Trade mechanism to reduce the emission of greenhouse gases that contribute to climate change. In addition, this bill insures the goal of SB 535 (De León), Chapter 830, Statutes of 2012, that 25% of all Cap and Trade funds benefit disadvantaged communities is met through the expenditure of these funds. This bill also insures the local planning efforts required by SB 375 (Steinberg), Chapter 728, Statutes of 2008, are reflected in the investment of funds for sustainable community efforts. Finally, this bill has accountability mechanism to insure that state investments demonstrate and verify reductions of greenhouse gas emissions, to insure a tight fee nexus required by the California Constitution Article XIII. For 2015-16 and beyond, this bill appropriates 60% of the Cap and Trade funds. Of this amount, 25% of all Cap and Trade funds are continuously appropriated for High Speed Rail construction related activities. Additionally, 35% is for the Transit, Affordable Housing and Sustainable Communities program. This program has three major components which are distinct and have their own dedicated appropriation articulated by this bill: 1)Twenty percent of all ongoing Cap and Trade funds are continuously appropriated for the Affordable Housing and Sustainable Communities program, a grant program administered by the Strategic Growth Council. Of this amount, half of the funds must be used for affordable housing. 2)Ten percent of all ongoing Cap and Trade funds are SB 862 Page 8 continuously appropriated for the Transit and Intercity Rail Capital Program, a grant program for transport and rail related capital projects that is administered by the State Transportation Agency and awarded by the California Transportation Commission. 3)Five percent all ongoing Cap and Trade funds are continuously appropriated for the Low Carbon Transit Operations Program, which provides funding through the existing State Transit Assistance program to reduce greenhouse gas emissions by supporting new or expanded bus or rail services or expanded intermodal transit facilities. Analysis prepared by : Christian Griffith / BUDGET / (916) 319-2099 FN: 0003980